., among them financiers such as George Soros, Stanley Druckenmiller, Steve Cohen, Steve Schwarzman, and Leon Black.6 Many of them have their own family offices. Family office principals, who typically are hardworking and well grounded, above all treasure privacy. They institute high barriers to entry, often employing gatekeepers to filter and vet requests, because their riches make them perpetual targets for people who want something from them.
As important job creators, taxpayers, and philanthropic supporters, family offices are powerful and influential forces in their communities. Whenever we invited public officials to a family office gathering, they would happily attend.
A family office platform facilitates networking so that families can benefit from each other’s experiences, coinvest, and leverage buying power.

…

Throughout my career, I had only dealt with institutional investors, but after starting my own company, I stumbled into the private wealth space. Because I knew many ultra-high-net-worth individuals globally, the family office of an IT billionaire asked me to assist in building a global nonprofit platform for family offices, where they could meet to exchange views and cooperate without the involvement of financial intermediaries, such as bankers or other service providers like attorneys and tax advisers. Such gatherings are among the most exclusive and private, because these families and their representatives only open their ranks if you are one of them.
Family offices are the investment management companies of wealthy families. Banks, financial firms, and multifamily offices typically manage the assets of families worth up to $500 million.

…

For families worth more than $500 million in liquid assets, having their own investment firms is expedient, because it affords them control, privacy, and cost efficiencies. The concept of a family office has evolved over a long time. Business tycoon John D. Rockefeller set up his family office in the nineteenth century. Often families have come into great wealth by building enormously successful companies, sometimes over the span of several generations. Among them are old industrial dynasties, nouveau industrialists, or tech billionaires. Some families consist of fewer than a dozen members, while others encompass hundreds. The priority of family offices is wealth preservation.
According to a saying, a fortune lasts for three generations: The first one makes it, the second one lives on it, and the third one squanders it.

Meanwhile, in today’s uncertain world, global imbalances are becoming
more pronounced while political, geopolitical, and social instability seem
to be evolving more rapidly than traditional investing institutions can
manage. The following chapters present the thinking of some of the best
minds in the investment world about how they interpret these events and
try to profit from them, using what remains the most open and flexible
mandate in the investment world: global macro.
CHAPTER 4
The Family Office Manager
Jim Leitner
Falcon Management
Wyckoff, New Jersey
he sign reads both “Falcon Management” and “Aikido Spirit” outside
the sprawling suburban New Jersey house that Jim Leitner calls base for
his family office when he is not on the ground scouring for investments in
India, the Ivory Coast, or some other far-flung location. Leitner manages
mostly his own money and has been doing so for years. As a result, his approach to global macro markets is different from most other fund managers in that he is not long an implicit put option.

…

We think the future is a
combination of the best from the real money world and the best from the
hedge fund world to create a new paradigm.
The big thing that distinguishes the real money world from the hedge
fund world is redemptions. Universities don’t have redemptions, nor do family offices for that matter. Both are going to be around for years so they invest
for the long term. Meanwhile, the hedge fund industry invests for the one- to
three-month time horizon, which subjects managers to taking inefficiency
risk and missing out on opportunities that are longer term in nature.
59
THE FAMILY OFFICE MANAGER
8,000
180
7,000
160
140
Ghana All Share Index
Guinness Nigeria
6,000
120
5,000
100
4,000
80
3,000
60
2,000
40
1,000
20
0
4
05
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FIGURE 4.3 Ghana Stock Exchange All Share Index and Guinness Nigeria PLC,
2002–2005
Source: Bloomberg.

This is perhaps the greatest lesson of all from the crash: change your views as facts change. It is important to recognize and accept when things don’t work out as you expect. If you are proven wrong, adjust your outlook accordingly. To persistently hold on to views, regardless of changing reality, is a recipe for failure and constant distress.
Chapter 3
The Family Office Manager
Jim Leitner Falcon Management
“ The Family Office Manager” is the most popular chapter in Inside the House of Money. The original interview was assembled from a series of discussions with Jim Leitner, who described his approach as attempting to combine the best of hedge fund investing with the best of real money management. In light of what happened to the real money world in 2008, those conversations provided the inspiration for this book.

Markets around the world, from real estate to equities to commodities to credit, posted huge declines, taking down with them some of the world’s most venerable financial institutions, a wide variety of alternative asset managers (hedge funds, private equity, venture capital, and real asset managers), and a host of real money accounts (pension funds, insurance companies, endowments, foundations, family offices, and sovereign wealth funds). Almost everyone lost money in 2008, and in many cases more than anyone imagined possible.
Anger and confusion linger in the aftermath of the crisis, but are by no means limited to market players. Main Street is reeling as homes and jobs have been lost, savings have evaporated, and many assumptions governing the stability of modern society have been challenged.

But for all their rigidity, trusts remain the best bet for protecting against creditors, divorce, and bad investments, as well as for avoiding the estate tax. At the same time, more and more superwealthy families are also employing family offices to steer them in the right direction. Hamilton estimates there are about four thousand family offices in the United States today, an increase of about one thousand in less than ten years. The offices are customized, offering a range of services from investment decisions and tax advice to philanthropic research, prenuptial agreements, and help with heirs’ education. Some family members may not be wealthy enough to afford all of these services on their own, but as a combined force they have powerful advice at their fingertips. What the family offices excel at, says Todd Millay, is keeping the dividends rolling in. “The best way to make a small fortune is to start with a large one,” he says.

…

Hunt’s estimated $2 billion fortune was divided, albeit unequally, among fourteen children and forty-plus grandchildren. By 1995 there were 110 direct descendants of John D. Rockefeller, but only three, David Jr. and Laurance from the third generation and Winthrop Paul Rockefeller from the fourth generation, made it onto the Forbes 400. Sara Hamilton of Family Office Exchange, which advises some of America’s wealthiest families, including the Sulzbergers (publishing) and the Weyerhausers (lumber), tells of a Rockefeller family member who turned twenty-one and went along to the family office, only to discover that his inheritance was a mere $2 million. “He’s fifth or sixth generation, but everybody expects because his name is Rockefeller there’s a lot more there,” Hamilton says. “People expect these household names to have a tremendous amount of wealth when, in fact, they may not.

Make sure you can speak to everything on
your resume, and don’t list deals that you can’t speak about for at least 30 minutes.
You don’t want to look like an idiot. You should be able to spin any experience that
you’ve had into something that would apply to the job you’re interviewing for.
See Resume F in Appendix B on page 168.
Case Study 13: A Family Office Becomes a Stepping-Stone
This person didn’t focus on a career in hedge funds early on. After completing a banking
program he had two different jobs—one at a firm doing acquisitions and another at a family
office doing public investing.
■■■
I was an economics major at a small liberal arts college and had no visions of hedge
funds. Even though I didn’t have a finance background I interviewed at some investment banks and consulting firms and ended up getting into an investment banking analyst program.

…

And, of course: Why did you
leave your previous fund? There were no trick questions, brainteasers, psychological tests, or
handwriting analyses. At this point they really want to know your investment ideas.
CASE STUDIES
To follow are case studies of five people who broke into hedge funds later in their
careers. Of the five examples, one joined from private equity, the second moved over
from a family office, another switched from sell-side equity research, a fourth broke in
after working in an investment bank, and the last transitioned in after working at a
long-only asset management firm.
Case Study 12: From Private Equity into Hedge Funds
This person spent a couple of years at a private equity shop before making the transition into a
hedge fund. This is a good example of someone who got into a fund a little later in their career.
■■■
Before hedge funds my entire career had been in private equity.

…

I finally received a verbal offer at a dinner with
the head of the firm, nearly four months after my initial meeting.
I wasn’t a stereotypical investor who began reading the Wall Street Journal at a
young age and buying stocks for my own account. In my case, I benefited from my
investment banking experience, which gave me a solid foundation in corporate
finance, and also from my private equity investing experience at the family office
where I worked.
My advice to others who aspire to work in a hedge fund
would be to get the investment banking training under your
“I would recommend that those
belt. I don’t think the particular group matters, as most will give
interested in hedge funds figure
you a solid foundation in finance, capital structures, M&A, and
out what they like and don’t like.”
financings. I would recommend that those interested in hedge
funds figure out what they like and don’t like.

I’ve been trying to get my
family more involved in technology, but it’s a hard sell.”
“Well, it’s a tough sector, but I think it is where all the growth
comes from in the next decade. But it’s volatile.”
“Most people in the room will tell you it’s way too risky.”
“Can I ask you a question?” I asked.
“Sure.”
“Who are all these people?”
“Some individuals but mostly family ofﬁces.”
“What does that mean?” I asked.
“Well, there are so many children and grandchildren and
cousins in wealthy families that usually some of the ones interested
in ﬁnance form a family ofﬁce and manage the family’s wealth collectively. You know, allocate assets between ﬁxed income and private equity, pick managers, that sort of stuff.”
“But what kind of families?” I asked. Everybody looked pretty
normal, not substantial.
“Big ones.”
“Like what?”
“See those guys over there?”
“Sure,” I answered, checking out three guys huddled at the
next table, poring over documents.

Although none were my closest friends, they were all people I knew quite well. I expected some of the natural scepticism that rich people often display towards ‘friends’ who ask for favours, but soon found that they had much more sophisticated ways of saying no. Nobody actually took offence or suggested that I was only friends with their money. On the contrary, they would try to help me by introducing me to either the main investment person at their family office (if they were very wealthy, with above say $100 million in assets) or, for the slightly less well-off, their private banker. Max Liechtenstein introduced me to LGT; one of the Rockefeller heirs introduced me to their fund, etc.
As I followed up with these professional advisers, a common theme emerged. The advisers would often go out of their way to show that they already knew about Holte. It was just that they had decided that the investment did not fit their investment criteria for reasons that had nothing to do with Holte, but rather to do with the brilliant investment strategy they had planned for the family.

…

As if it hadn’t already done so.
That evening on my way home from work I stopped to buy flowers for Puk to reinforce my commitment to our wedding. I was standing by the cash register with my ‘reduced to clear’ bouquet when Borut, a friend from college, saw me.
‘No wonder you get all the girls,’ he laughed.
The race to find investors for $1–2 million meant hitting up the smaller funds of funds and family offices we had met while fund-raising and paying them special attention that many of them were not used to. When an investor with a potential investment of $1–2 million approaches a multi-billion-dollar hedge fund they might get a meeting with marketing person number six, but the George Soros equivalent is unlikely to find time in his schedule. At Holte Capital they would get all the love and attention they could desire.

…

A Chicago-based fund of funds decided to invest $2 million and committed to investing another $1 million the following month if there were also other investors investing more. They liked what we did and that our initial returns had no market correlation. The $2 million meant we could keep going at least another couple of months. The following month we built on the momentum. A UK fund invested $2.5 million, a Kuwaiti family office invested $1 million, and a New York-based fund of funds invested $750,000. With these new investments, our new friends from Chicago kept their commitment and invested a further $1 million. Excellent. From being a $3.5 million hedge fund on 31 January 2003 we went to work on the morning of 1 March running a hedge fund of around $11 million. Not quite a big-time hedge fund, but fast getting towards the break-even point where we could cover our expenses.

pages: 385words: 118,901

Black Edge: Inside Information, Dirty Money, and the Quest to Bring Down the Most Wanted Man on Wall Street
by
Sheelah Kolhatkar

Attorney for the Southern District of New York declared SAC a “magnet for market cheaters” and said that the company had “trafficked in inside information on a scale without any known precedent” in the history of hedge funds. “They’re a great counterparty.”
During discussions with Cohen’s lawyers prior to the indictment of SAC, the U.S. Attorney’s Office had made it clear that, in order to resolve the case, Cohen would have to shut his hedge fund down. Cohen would still have close to $10 billion of his own money, however, which he would be allowed to trade and invest as a private family office. The government could not stop him from trading his own money. Until he was convicted, Cohen and his army of traders would still command respect from Wall Street’s major investment banks and have access to the best IPO allocations. The $10 billion number was important to Cohen. It sent a signal to the world that nothing had really changed.
Then, in the second week of September, Cohen’s lawyers got a call from Anjan Sahni, the co-chief of the securities unit at the U.S.

…

“Steve is a very serious, very astute collector,” gushed William Acquavella, one of Cohen’s art dealers, in The New York Times. “He also has just the right instincts, ones that can’t be learned from reading art history books.”
Cohen had been working to cleanse his reputation on Wall Street as well, trying to create distance between himself and the legal scandal. As required by the criminal settlement with his company, Cohen had closed SAC and turned it into a private family office that invested only his own money, close to $10 billion. It was important to him, that $10 billion figure.
In April 2014, three months after Martoma was convicted, Cohen changed his firm’s name from SAC Capital Advisors to Point72 Asset Management, a reference to its address at 72 Cummings Point Road in Stamford. He also removed his top associates and advisors who had helped guide him through his legal troubles.

…

The SEC’s case against Cohen for failing to supervise Martoma and Steinberg was still unresolved. The agency wanted to bar him from the securities industry for life, but Cohen was fighting it. He hired the celebrity defense lawyer David Boies to join the legal team working on the SEC case. He told friends that he expected to run another hedge fund in the not-too-distant future, something that would likely be impossible if the SEC won its case. In the meantime, Cohen’s “family office” was earning him hundreds of millions of dollars a year. He was still trading billions, he was still buying art—eight years and every resource the government could direct at him couldn’t stop him.
—
Over the course of the three years in which I conducted the reporting for this book, I was in and out of contact with Cohen’s office, attempting to arrange an interview with him. I called and wrote letters and had meetings with his representatives.

By all appearances, this yacht is also held by a shell company in another tax haven.
All perfectly organized by a professional family office. But is it normal to set up one offshore company here, one there, and another over there?
In the world of the mega-rich, the answer is evidently: yes.
[ ]
At some point towards the end of the last century, a parallel universe emerged in which the ‘uber-wealthy’, a term used in America to describe the richest of the rich, park their assets somewhere offshore, simply as a matter of course. The number of very rich and very famous families in our data who have parked part of their assets in shell companies is in three figures. The asset managers of all the family offices, exclusive private banks and large VIP departments of the major banks assist with this. If you ask anyone employed in this secretive industry why the money almost automatically ends up offshore, you will be told that it certainly doesn’t have anything to do with tax avoidance or tax evasion.

…

In fact, according to the charity Oxfam, the top 1 per cent of the global population has more wealth than the rest of the world put together. It’s hardly surprising that a booming industry has formed around this 1 per cent, existing solely by adding to this tremendous wealth. Part of this industry is represented in our data, involving almost every country and thousands of companies. It’s the family offices, asset management companies, banks, investment advisers, tax experts, and of course Mossack Fonseca itself.
All for the 1 per cent.
[ ]
One per cent.
From that figure, an established political term has evolved to denote the richest 1 per cent of a country. In the US, the term was turned on its head to provide the slogan of a political movement: ‘We are the 99%’. This was chanted by supporters of the Occupy Wall Street movement; ‘99%’ was scrawled across placards and banners.

It’s not easy and it’s not obvious and chances are if you ask a random person about it they will look at you with a blank stare and tell you to leave them alone.
Another reason to pick the right mentor.
I think your goal is to visualize and what the heck, actually draw a picture of how money flows or, as I like to say, sloshes around Wall Street.
You need to see how the pieces are interconnected. Start with the asset managers on the buy side, the hedge funds, family offices, endowments, pensions, sovereign wealth funds, thrifts, insurance companies, venture capital firms, private equity firms, financial investors, rich dudes, who is servicing who and how does the money end up in the right hands.
Then on the sell side, start connecting the dots between the bulge bracket firms, universal banks, broker dealers, wire houses, wealth platforms and intermediaries.
And when a trade is executed, who touches it.

STN currently has Passport, and SunGard’s BRASS and Broker Direct U2.
15.3 Order Management Systems
The source for information provided in this section is Capital Institutional Services, Inc. Fourth Quarter 2005.
Advent Moxy
Moxy (see www.advent.com) is licensed by bank trust departments,
money managers, broker-dealers, wrap sponsors, financial planners, hedge
funds, mutual funds, corporations, family offices, and insurance companies.
176
Electronic and Algorithmic Trading Technology
The range of assets under management is from $100 million to over $40
billion, with the typical client having between $3 to $5 billion in assets under
management. Moxy is currently licensed at over 630 firms and has a presence
in the United States, Europe, Canada, Mexico, Australia, and the Far East.
Moxy runs on Microsoft SQL Server 2000.

…

Advent Software, Inc. is a provider of Enterprise Investment Management solutions, offering stand-alone and client/server software products,
data interfaces, and related services that automate and integrate missioncritical functions of investment management organizations. Advent has
licensed its products to more than 6,000 financial institutions in 36 countries
for use by more than 60,000 concurrent users. The company’s common stock
is traded on the NASDAQ National Market under the symbol ADVS.
Antares
Antares (see www.ssctech.com) is marketed and sold to buy-side money
managers including hedge funds, family offices, institutional asset managers,
proprietary trading desks, short-term (money market) desks, pension funds,
and mutual funds. The range of assets under management for an Antares
client is from $100 million for some of the smaller hedge funds, and up to $75
billion for the larger asset managers. The typical Antares client has $1 to $10
billion in assets under management. Antares has an open database client/
server (Sybase or Microsoft SQL Server) architecture, which runs on the
Windows Server operating system and/or Solaris UNIX.

In this program, which Charlotte Beyer of the Institute for Private Investors and I founded in 1999, the investors themselves
come to Wharton for a week to learn about how to invest their wealth. As
of 2010, almost 600 ultra-high net worth investors have taken part in this
program. This program has given me perspective from the investor’s side
of the advisor-investor relationship. I have also had extensive experience as
an advisor to the family offices of ultra-high net worth investors and as a
consultant to pension funds and endowments.
What I have learned is that investing isn’t easy. But as shown in this
book, thoughtful asset allocation provides discipline to the investment process and gives the best chance of building and safeguarding wealth. The
purpose of this book then is to help guide the investment advisor through
all of the major decisions in designing a portfolio.

…

Marston has taught asset allocation in the CIMA investment management certificate program at Wharton since the program was founded in
1988. He has also given investment presentations throughout this country
as well as in more than a dozen countries in Europe, Latin America, and
Asia. Since 1999, he has directed the Private Wealth Management Program
at Wharton, a program for ultra-high net worth investors. He also serves as
an advisor to several family offices and investment companies.
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About the Book
his is a book designed to be read by investment advisors. The book is rich
in information about individual asset classes, including both traditional
assets like stocks and bonds as well as alternative investments such as hedge
funds, private equity, real estate, and commodities.

He was installed at an oak rolltop desk on the austere and slightly shabby ninth floor, in an office suite dedicated to his father’s outside investments and philanthropies. He worked cheek by jowl with Frederick T. Gates, George Rogers, and a telegrapher, Mrs. Tuttle, who had the dubious honor of opening Rockefeller’s crank mail—and “there was a great deal of it,” said Junior.25 Though he worked in the Standard Oil building, Junior was uninvolved in its management, and he belonged instead to the incipient Rockefeller family office. If his $6,000 annual salary, paid by father, seemed generous, it was a disguised allowance that kept Junior in a state of childlike dependence.
Junior turned aside suggestions that he go to law school or treat himself to an around-the-world trip. “I felt that I had no time for either, that if I was going to learn to help Father in the care of his affairs, the sooner my apprenticeship under his guidance began, the better.” 26 Junior was again living at 4 West Fifty-fourth Street and had ample opportunity to sound him out, yet the taciturn Senior provided no clues about what he expected of his son, leaving him in limbo.

…

During the summer of 1909, the fifty-six-year-old Gates was suffering from nervous strain, likely from overwork, and wanted to spend more time with his wife and seven children. Around 1912, the once threadbare Minnesota preacher picked up at bargain prices twenty thousand acres of land near Hoffman, North Carolina, and set about growing cotton, corn, and oats and raising livestock on a thousand-acre farm with a peach orchard of seventeen thousand trees.
In August 1912, Gates tendered his resignation from the business side of the family office to devote himself solely to the philanthropies. Long reliant upon Gates’s sound judgment, Rockefeller tried to sweet-talk him into staying: “Shall we not, dear friend, continue along life’s pathway together, both of us recognizing the propriety for ourselves of increasing freedom from care, but, nevertheless, both continuing to give what time we wisely and appropriately can, to the large and important questions, old as well as new, which we find ourselves in a position to help to solve?”

…

Never feel as if people—both boys and girls—wanted to be with me.”22 “Can’t keep smile on my face which is most embarrassing. Muscles tremble. Give anything to be over it.” 23 In his final bleak college entry, John recorded, “Guess the reason I am glad to get through college is because I have made rather a mess of it; also haven’t really made hardly any friends.”24
After graduating, John traveled around the world before taking up his duties at 26 Broadway, where he placed himself at his father’s disposal. The family office was now an enormous bureaucracy staffed by more than one hundred people, including lawyers, accountants, money managers, and real-estate experts. If Rockefeller had let Junior wander confusedly during his early years at 26 Broadway, Junior handled his son in a much more direct and stifling manner. During John’s first day at work on December 2, 1929, Junior held a press conference to introduce his son then proceeded to dominate the discussion.

When Cowen decided to raise money for a fund, the Robert M. Bass Group, then a client of the firm, offered to provide Cowen with virtually all of the capital. After Cowen refused to take all of the Bass capital, the siblings decided to leave the firm and go work for Bass. “Once we got to the Bass organization, we realized it was a pretty unique place. It’s difficult now to fathom, but back then the only people who really had capital were wealthy family offices,” remembers Lasry.
The Robert M. Bass Group, later called Keystone, Inc., had been known as a breeding ground for some of the world’s top private equity investors, including David Bonderman, who went on to found Texas Pacific Group (TPG), and Richard Rainwater. When Marc and Sonia joined the Bass Group, they were given a portfolio of $75 million to invest in trade claims, bank debt and senior bonds.

…

Investors appreciate that level of focus on the portfolio, which is part of the reason Avenue has been able to continue to raise new funds over the years. The firm’s investor base has undergone a dramatic evolution from its start in 1995, when its capital came from friends and family. At the end of 2011, public and corporate pension fund capital comprised over 50 percent of the firm’s assets. Foundations, endowments, family offices, and insurance companies made up much of the remainder, with less than one percent drawn from high-net-worth individuals.
Charles Spiller, Director of the Pennsylvania Public School Employees Retirement System, started investing with Avenue after an introduction from New York Life in late 2000 and has seen a 10-year track record in their private equity portfolio of between 15 percent and 17 percent.

He disliked stock brokersso much that he ignored their advice to diversify and kept all his
wealth in Netscape and Healtheon. He disliked venture capitalists and investment bankers and, in
general, the phalanx of financial intermediaries who sat between the creators of wealth and their just
desserts.
At first he decided that what he really wanted was what rich people have always had: a family office.
The rich man's family office is normally a staff of people who do nothing but take care of the rich
man's money. Money butlers. Pretty quickly, however, he realized he wanted more than a money
butler. He wanted to be able to watch what his money butlers did. He wanted to be able to take in
every aspect of his money at a glace, no matter where on earth he happened to be, and at what time.
The Internet was perfectly suited to what he had in mind.

, EFA, by Brad Barber and Terrance Odean (1999).
40 ‘Trading is hazardous to your wealth: the common stock investment performance of individual investors’, The Journal of Finance, by Brad Barber and Terrance Odean (2000).
41 Kahneman and Tversky (1979).
42 ‘Focusing on the Forgone: How Value Can Appear So Different to Buyers and Sellers’, Journal of Consumer Research, by Ziv Carmon and Dan Ariely (2000).
43 The Psychology of Finance, by Lars Tvede (1999).
44 More Than You Know, by Michael Mauboussin (2006).
45 Mauboussin (2006).
46 Mean Genes, by Terry Burnham and Jay Phelan (2001).
47 Lynch (2000).
48 Thaler and Johnson (1990).
49 ‘Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency’, Journal of Finance, by Narasimhan Jegadeesh and Sheridan Titman (1993).
50 ‘Do Stock Prices Move Too Much to Be Justified by Subsequent Changes in Dividends?’, American Economic Review, by Robert Shiller (1981).
51 Druckenmiller is a very famous investor who achieved compounded returns of ~30% from 1986 to 2010 before announcing he was returning all outside investor capital from his Duquesne fund and forming a family office.
52 Schwager (1994).
53 Those of you with a keen eye will note that this was the same date as for Spirax-Sarco. The reason is simple. That’s when I gave him the money to invest.
54 ‘Best Ideas’, by Randolph Cohen, Christopher Polk, Bernhard Silli (2010). Available at SSRN: ssrn.com/abstract=1364827
55 Active weight, not absolute weight.
56 Cohen, Polk and Silli (2010).

Ironically, based on the
trades Lewis described, I drew a very different impression about the balance between luck and skill in driving the success of Cornwall Capital
(Mai’s firm) than Lewis himself did.
Lewis’s colorful narrative of Cornwall as a hedge fund started in a shed on a shoestring budget, trading a small brokerage account, gave no hint
of the firm’s institutional context. The reality is a bit duller. Cornwall was originally founded as a family office to diversify the capital of Mai’s father,
who ran AEA Investors, a prominent, long-standing private equity firm that was recently rated one of the 10 most consistent performing buyout fund
managers in the world.
Shortly after he started Cornwall, Mai was joined by Charlie Ledley, a former colleague from a private equity firm at which they had both worked.
A third key principal, Ben Hockett, joined Cornwall in 2005 as head trader.

…

Although this particular trade was unusually profitable—Cornwall ultimately made
about 80 times the initial premium they paid out for subprime default protection—it was entirely representative of the types of trades Cornwall
seeks out.
Beginning in May 2011, Cornwall switched to a new fund structure open to outside investors. Through the years, Mai had encountered several
outstanding trade opportunities that could easily accommodate far more capital than his family office could invest. In a few of those instances, he
explored the possibility of raising outside investor money to participate in the trade idea, but decided the lag involved was too long. The catalyst
that finally convinced Mai to restructure the fund to accommodate investors was born of the frustration of being unable to participate in a rare pure
arbitrage opportunity in 2008 because he lacked sufficient assets.1 Mai decided to open the fund to only a handful of like-minded, sophisticated
investors with whom he could be reasonably transparent and share ideas, rather than seeking to maximize assets under management.

…

Based on the numbers in the book, it sounded like you multiplied your initial $110,000 stake more than
a thousandfold, which sounds a bit incredulous.
It is, though in fairness to Michael he had one major constraint in telling our story, which was that he had to leave my family out of it. My father
has run one of the oldest leveraged buyout firms in the United States for over 20 years, and before that he ran the investment bank for Lehman
Brothers. Cornwall Capital is a family office he and I formed together in 2002. The whole conceit of three dropouts lacking in direction and
operating on a shoestring budget made good copy while preserving my family’s privacy, but it didn’t accurately reflect the fact that we had
capital and a clear idea of how we wanted to evolve our investment approach. We did our first trade in my small Schwab account because we
hadn’t finalized the structure of the family’s comingled investment vehicle.

I got a great deal of drive and competitive verve from him. My mother was extremely supportive and always told me I could do anything I set my mind to. Those were the people who continued to give me strength throughout my early background and career.
I have a wonderful husband, four great step-children, and two “feline” children. My step-kids range in ages from twenty-two to thirty-two years old. My husband, Stewart Smith, manages investments—the family office—for his family. He is very involved in philanthropy and gives generously of his time, skill, and money.
Ghaffari: Do you find it easy to balance work and the rest of your life?
Ferracone: I don’t see it as work-life balance. I see it as successfully blending work-life priorities. I work extremely hard and a lot of hours. The entrepreneurial thing kind of lends itself to this. It has no boundaries.

…

Laura Roden
Founder and Managing Director, VC Privé, LLC
Born in Los Angeles, California.
Laura Roden is founder and managing director of VC Privé, LLC, a boutique investment bank that, since its establishment in January 2007, has raised money for high-quality, alternative asset funds such as venture capital funds, hedge funds, and distressed debt funds. Her firm specializes in marketing funds to private investors, including high-net-worth individuals, family offices, foundations, endowments, and independent financial advisors. Ms. Roden holds Series 7, 66, and 79 licenses to sell securities and provide investment advisory services.
Previously, Ms. Roden was managing director of The Angels’ Forum, a leading association of individual and corporate early-stage investors, and was president and CEO of the Silicon Valley Association of Startup Entrepreneurs (SVASE), the largest nonprofit in Northern California dedicated to helping technology entrepreneurs.

“With the amount of trading Madoff would have to do,” he told Ocrant, “you’d see those fluctuations—and they aren’t there.”
Point by point Ocrant confirmed Frank’s claims about Madoff. And just as had happened to us, the more he learned the more intrigued he became. Madoff’s name began slipping into most of his conversations. He was on the phone one afternoon with Hunt Taylor, the former chairman of the Cotton Exchange who was then managing the family office for the Stern family, owners of Hartz Mountain. Whatever the original purpose of the call, eventually Ocrant found himself asking the now-familiar question: “Have you ever heard about Bernie Madoff managing money?”
“God,” Taylor responded. “It’s funny you should mention that, because I just came back from a conference, and me and a bunch of guys were sitting around the table talking about that.

…

The acknowledged Madoff feeder funds—New York-based Fairfield Sentry and Tremont Advisors’ Broad Market; Kingate, operated by FIM of London; and Swiss-based Thema—derive all the incentive fees generated by the program’s returns (there are no management fees), provide all the administration and marketing for them, raise the capital and deal with investors, says Madoff.
Madoff Securities’ role, he says, is to provide the investment strategy and execute the trades, for which it generates commission revenue.
[Madoff Securities also manages money in the program allocated by an unknown number of endowments, wealthy individuals and family offices. While Bernie Madoff refuses to reveal total assets under management, he does not dispute that the figure is in the range of $6 billion to $7 billion.]
Madoff compares the firm’s role to a private managed account at a broker-dealer, with the broker-dealer providing investment ideas or strategies and executing the trades and making money off the account by charging commission on each trade.

Like the sturdy iron Silk Roads stretching across Eurasia, these vectors form a new “permanent capital” with longer time horizons, greater ability to withstand volatility, and stronger appetite to invest globally. The world’s billionaires, whose total number has doubled since the financial crisis to more than two thousand, are emblematic of this trend. Billionaires are both individuals and instividuals—institutional individuals—that can operate on the scale of companies through their own family offices. Their financial orbits represent the world’s single largest pool of capital at $46 trillion. They are joined by pension funds whose investable capital is over $40 trillion. While European pension portfolios lead the way in infrastructure investments abroad, Asian funds (which represent half of the top twenty) are aggressively joining them in scouring ever more globally for returns to meet their rising domestic obligations, along the way lobbying aggressively for China, India, Nigeria, Turkey, Mexico, and others to raise their quotas for foreign investment in specific sectors such as real estate, telecoms, financial services, and infrastructure.9 Insurance funds represent another $30 trillion in assets that have been historically rooted in national portfolios but today have also become more like capital networks looking for greater exposure to local markets.

…

Furthermore, countries that export lucrative services such as computer programming, back-office research, and medical X-ray consultation get the double bonus of attracting far more foreign investment into these sectors: more investment in, more exports out. The cost of financing technology companies has also plummeted. Venture capitalists and Wall Street banks now coexist in a much larger funding ecosystem alongside family offices, angel investors, and crowd-funding platforms such as Kickstarter, collectively delivering more capital more effectively than cumbersome public markets did in the past.
But the new economy needs the old economy: Digital services advance through modernized infrastructure. It is the combination of improved physical infrastructure and e-commerce that makes the supply chain world an increasingly seamless physical-virtual hybrid marketplace of goods, services, payments, and delivery.

Separate account management is usually highly customized and
responsively provided, which means that qualifying clients normally
ﬁnd such investment services attractive and convenient.
In the past few decades, a broad system of private wealth management has been created, bringing the features of a family office to a
wider, albeit still limited, audience. This system takes into account the
complicated needs of wealthy individuals, providing for estate planning and, importantly, keeping an asset base secure. Unlike a dedicated
family office, private banking does not involve an entire organization
devoted to the wealth of a single individual or family. However, private banking does require investors to have a high level of assets, and
it provides personally tailored investment advising and other services
that commercial bank branches and retail brokerages do not offer.52
J.

How could Swensen not understand a simple
trend following system?
This is a game of
misses. The guy who
misses the best is
going to win.3
One trend trader countered: “If you are going to give a systems trader
the label ‘black box’ then all those guys predicting the future, at least have
the consistency to call them the crystal ball.”4
Wall Street needs a spin or a narrative to sell, and they all sell similar stories. Pension funds, family offices, fund of funds, and others who allocate
money, like to herd. These gatekeepers always move in lockstep. They blindly
follow the worst investing schemes, and continually knock sound strategies
such as trend following—with terms like black box.5
Why? So many are motivated by what matters least. Namely, quick
money (the quicker the better) at
whoever’s expense. That’s how
Many on Wall Street don’t want
the financial world got so close to
above average returns.

Lenders were often no better: like other auction sites, Prosper found that there was a small group of people whose goal was to win the auction no matter how low the rate they received as a result.
This sort of foolishness is not just restricted to retail investors. MarketInvoice, an electronic platform in London that allows small firms to sell off their outstanding invoices at a discount, also used to run auctions. Its investors were not members of the public, but high-net-worth individuals, family offices, and specialist funds. Even so, it observed exactly the same kind of behavior, with investors determined to invest their allocation of money no matter what and bidding discounts down to minuscule levels.
Prosper’s experiment with an auction system has long since ended. It now assesses borrowers itself and puts them into risk bands that come with a preordained interest rate attached. Lending Club, Zopa, MarketInvoice, and others do the same thing.

LTCM also approached Julian Robertson of Tiger Management, but he declined.
On August 26, Eric Rosenfeld and John Meriwether asked Warren Buffett for money. The next morning, Larry Hilibrand went to Omaha, Nebraska, to talk to Buffett. Buffett declined to invest because he thought the portfolio was too complicated. Myron Scholes called William Sharpe, another Nobel prizewinner in economics, to ask him for money from a family office that Bill Sharpe was advising. Again, LTCM’s trades looked too complicated.
Despite the many negative responses, it seemed that LTCM had enough commitments for capital. On the anticipated closing day, August 31, George Soros’s Quantum Fund pulled out its large stake: $500 million. That was it. LTCM was desperate.
Who would LTCM call next? In the end, a letter would seal its fate.
The Meriwether Letter
LTCM ended 1997 with $4.668 billion in capital; the partners controlled a little more than $2 billion.

…

To classify as a foreign private advisor means to have no place of business in the United States fewer than 15 U.S.-based clients and investors in the funds, have assets under management attributable to U.S. clients of less than $25 million or a higher amount approved by the SEC, and do not advertise themselves to the U.S. public as an investment advisor. Third, advisors to small business companies and family offices are exempt. Finally, advisors to one or more private funds with less than $150 million will not have to register, but will still have to file reports with the SEC. These rules will affect roughly 20% of the hedge fund world in terms of the number of hedge funds and about 97% in terms of assets under management.
The registration will require hedge funds that qualify to report total assets under management, types of assets held, use of leverage, counterparty credit exposure, trading and investment positions, trading practices, valuation policies and practices, side letters or arrangement trading which treats different investors differently, and information the SEC deems to be in the public interest or required for systemic risk monitoring.

The fact is, currency wars are fought globally in all major financial centers at once, twenty-four hours per day, by bankers, traders, politicians and automated systems—and the fate of economies and their affected citizens hang in the balance.
Participation in currency wars today is no longer confined to the national issuers of currency and their central banks. Involvement extends to multilateral and global institutions such as the IMF, World Bank, Bank for International Settlements and United Nations, as well as private entities such as hedge funds, global corporations and private family offices of the superrich. Whether as speculators, hedgers or manipulators these private institutions have as much influence over the fate of currencies as the nations that issue them. To see that the battle lines are global, not neatly confined to nation-states, one need only consider the oft-told story of the hedge fund run by George Soros that “broke the Bank of England” in 1992 on a massive currency bet.

‘Should we take precautions on your behalf as well?’
Quarry laughed. ‘The only thing that keeps me awake at night is the thought of a paternity suit.’
‘RIGHT,’ SAID QUARRY, when Genoud had gone, ‘let’s talk about this presentation – if you’re still sure you’re up for it?’
‘I’m up for it.’
‘Okay, thank God for that. Nine investors – all existing clients as agreed. Four institutions, three ultra-high net worths, two family offices, and a partridge in a pear tree.’
‘A partridge?’
‘Okay, not a partridge. There is no partridge, I concede that.’ Quarry was in great high spirits. If he was three parts gambler he was also one part salesman, and it was a while since that crucial part of him had been allowed its head. ‘Ground rules are: first, they have to sign a non-disclosure agreement regarding our proprietary software, and second, they’re each permitted to bring in one designated professional adviser.

It was from Ackman and filled with books: Graham and Dodd’s Security Analysis, Peter Lynch’s One Up on Wall Street, Benjamin Graham’s Intelligent Investor, Lawrence Cunningham’s The Essays of Warren Buffett, and Thornton O’glove’s Quality of Earnings.
These were Ackman’s favorite books on investing, and he wanted White to read them all. Ackman made his reputation on Wall Street as an activist investor, a high-profile role that requires a knack for showmanship. But those who know Ackman well say he is an analyst at heart.
“He is the smartest analyst I’ve ever met,” says Rafael Mayer, managing director of Khronos LLC, a family office and fund of funds investor, and a friend of Ackman’s. “He looks at something and he just decomposes it.”
That process began with questions, lots of questions, including the one Ackman had badgered White with so many times while they were fishing: “Why?” It was also the question Ackman had tried to answer when he looked at the MBIA reinsurance transaction now being investigated by regulators.

In any case, Scribe Reports was a business that was not well suited to
marketing while I was at Moore, because Moore was a large and strong
201
ccc_demon_165-206_ch09.qxd 7/13/07 2:44 PM Page 202
A DEMON
OF
OUR OWN DESIGN
competitor for investor dollars for most of my potential clients. I went
from Moore to Ziff Brothers Investments, and while there I continued to
pursue this venture. ZBI traded only with internal funds—those of the
Ziff family, of publishing fame—in what is termed in the investment
world a family office; it was never chasing after other hedge funds’ investor dollars. Not long after I joined ZBI I moved from risk management
to portfolio management. I redirected the efforts of a small group of
PhDs who had been providing quantitative analysis for the traditional
portfolio managers toward running an internal portfolio based on quantitative trading models.
While the trading center for Moore was macro strategies, at ZBI the
center was equities, and the portfolio I managed was an equity portfolio.

His follow-up book, Beat the Market, helped transform securities markets. In the early 1970s he, together with a business partner, started the first ‘market neutral’ derivatives hedge fund, meaning that it avoided any market risk. Since then, Thorp has developed more and more mathematically sophisticated financial products, which has made him extremely rich (for a maths professor, anyway). Although he used to run a well-known hedge fund, he now runs a family office in which he invests only his own money.
I met Thorp in September 2008. We were sitting in his office in a high-rise tower in Newport Beach, which looks out over the Pacific Ocean. It was a delicious California day with a pristine blue sky. Thorp is scholarly without being earnest, careful and considered, but also sharp and playful. Just one week earlier, the bank Lehman Brothers had filed for bankruptcy.

In either case, they skirt all the taxes they legally (and sometimes not so legally) can. They put their assets in a variety of exotic structures in a variety of exotic locales—Uruguay, Liechtenstein, the South Pacific island of Niué.
The problem becomes taking care of your stuff. With a hundred million dollars, you might have bodyguards and assistants and a permanent staff to care for your homes. With a billion, you need someone like Santiago. With a few billion, you need a family office of your own, a whole company to manage your assets and affairs. Abilio Diniz’s occupies multiple floors of an office building in São Paulo. Sometimes not even that’s enough. I met a former management consultant named Natasha Pearl who tends to the trickier aspects of life for the ultrarich. She knows what numbers to call if you want to buy a racehorse or sell a diamond necklace. She knows discreet psychiatrists for troubled heirs and heiresses.

Between 1976 and 1988, it opened fifteen offices around the globe, including Boston, Madrid, Lisbon, and Stuttgart.
McKinsey partners had always done well; now top directors were pulling down as much as $500,000 a year. That’s the kind of thing that happens when your income growth far outstrips growth in head count. The firm had accumulated so much money that in 1985 it established the McKinsey Investment Office, which operated as a kind of internal family office/fund of funds from that point forth. At a later conference of firm partners in Boca Raton, Marvin Bower asked his partners: “Do you know when you’re making too much money? When you need someone else to manage it for you.” While those in attendance nodded in agreement with the old man, they still wanted to know what their bonuses would be that year.
Everyone wanted to talk to McKinsey, in part because its massive scope certainly did give it perspective on the best practices of one’s competitors, whether they were in New York, London, or Tokyo.

Its performance compared to that of other hedge funds, especially quant funds, will help us understand where the true experts are in this domain, and how powerful the crowd can be.
At least one stalwart of the investment community’s core believes enough in Quantopian to trust it with his own money. In July of 2016, Steven Cohen, one of the best-known hedge fund managers of all time, announced that he was making a venture investment in Quantopian and also giving it $250 million from his family office to invest in its crowdsourced portfolio of quant algorithms. Matthew Granade, Cohen’s head of research and venture investment, said that “the scarce resource in quantitative investing is talent, [and] Quantopian has demonstrated an innovative approach to finding that talent.”
We find Quantopian fascinating because it illustrates all three of the technology trends that are reshaping the business world.

Challenges to one’s Aryan background were commonplace. Whether driven by a sense of national duty or ordinary fear, everyone was forced to confront their racial make-up. At the apex of racial grading was a bureaucratic entity attached to the Interior Ministry. This section began its existence before 1933 as the Nazi Information Office. Ultimately, after numerous name changes, it became known as the Reichssippenamt, or Reich Family Office, endowed with the final authority to decide who was Jewish or Aryan.71
Lists were distributed, exchanged, and updated continously, often in a haphazard fashion. To cope with the growing bureaucratic fascination with punch card records, senior Interior Ministry officials reviewed one fanciful proposal for a twenty-five-floor circular tower of data to centralize all personal information. The proposal was rejected because it would take years to build and stock.

They alleged she asked Mullen to put together a gift list that totaled “someplace in the range of $10 million,” and that in a meeting with one of her lawyers after the new documents were drawn up, she upped her gifts to a maid and secretary and deleted Stockmar because “she had already done enough for Diane and … they had not been in close contact with each other for some time.”
The response then recounted the sad end of Dolly’s life in great detail, her January 1987 visit to a glaucoma specialist that left her suicidal, her last visit to the family office that February, the hiring of round-the-clock nurses shortly afterwards, a March call to her lawyers from one of the chauffeurs saying Dolly wanted to revise her will again, and the way “Respondent Logan was asked to help guide Dolly’s hand to the line on which she should sign (since she could not see well enough to find the line).” One last curious feature of the executors’ response to Stockmar was their answer when asked whether Dolly believed Diane to be her daughter.

Epitomizing the extremes of inequality in America today, this one family enjoys wealth equal to all the assets of the entire bottom 40 percent of the U.S. population—120 million people.
In Upper Richistan and Billionaireville, Frank wrote, the super-rich and ultra-rich often compete with each other in conspicuous consumption. Their primary residence costs an average of $16.9 million. Many of these families set up “family offices,” where their personal management staff is dedicated to running their households, paying bills, arranging travel, and handling day-to-day needs. In this group, butlers are back in fashion. According to Frank, super-rich families spend up to $2 million a year on staff, $107,000 for annual spa bills, and up to $182,000 each on watches and $319,000 for cars. For investments, they don’t buy mutual funds; they buy timber, land, oil rigs, and office towers.

More important, the Egyptians still held the Gaza Strip and the Faluja Pocket areas of Mandatory Palestine. They had established a continuous chain of fortified positions between Auja al-Hafir and Bir Asluj, just south of Beersheba, which effectively left the central and southern Negev under their thumb and Beersheba itself under potential threat.
Israel, meanwhile, remained burdened by the crippling weight of mobilization: half its adult males were under arms, away from their families, offices, farms, and plants, and with no end in sight. The new state, ravaged by the war, needed its manpower and peace to pursue reconstruction and to absorb the masses of immigrants flooding its shores. Yoav had failed to resolve the strategic dilemma of "no war, no peace."
David Ben-Gurion was still powerfully drawn to Judea and Samaria by historical-ideological and strategic considerations,' but international diplo matic considerations dictated caution and restraint.

Some of them grumbled that Thiel had brilliant ideas but couldn’t time trades or manage risk—he’d been predicting a crash in real estate for years, but when the moment came he was unable to take advantage. In mid-2010, with the bleeding unstanched, Clarium had to close its New York office and return to San Francisco. The moves were costly disruptions. By 2011, the fund’s assets were down to $350 million, two-thirds of it Thiel’s money, the entirety of his liquid net wealth. Clarium became a de facto family office.
For the first time in his life, Thiel had failed at something he prized, publicly and spectacularly. He was humbled by it, and unlike at PayPal, where setbacks had triggered outbursts, he took losing well and kept an even keel with his staff. During the same period, his view of America began to darken. As he reconsidered the years since the seventies, years that had seemed so bright and hopeful, especially in Silicon Valley, even Facebook lost its glow.

Their gifts have helped make New York City the spectacular metropolis it has become; take them away, and New York would be a more ordinary place.4
Besides their huge fortune and their commitment to civic missions that would justify their wealth and atone for past business ruthlessness and for notorious incidents like the Ludlow Massacre of 1914, their penchant for organization is also a legacy of the Rockefellers. Starting with the innovation of the Standard Oil Trust in 1883, the Rockefellers have been adept at using organizations to achieve their ends, from the family office in Room 5600 of the RCA Building that handled their investments, to foundations like the Rockefeller Foundation and the Rockefeller Brothers’ Fund that have directed their philanthropic endeavors, to auxiliaries like the Rockefeller Archive Center that generate knowledge about the family and its activities. They have also retained public relations consultants, lawyers, scientists, architects, and art historians who used their expertise to refine and perpetuate the mission of the family.

pages: 827words: 239,762

The Golden Passport: Harvard Business School, the Limits of Capitalism, and the Moral Failure of the MBA Elite
by
Duff McDonald

The firm’s first fund was just $8 million; its eighth was $550 million.4 While that size constrained the ability of the funds to achieve the spectacularly high returns of smaller funds, it likewise opened venture capital to a wide variety of pension fund and other institutional investors.
There is Peter Crisp (’60), hired by Laurance Rockefeller in 1960 to help with the Rockefeller family’s informal venture investments. Crisp played a pivotal role in the 1969 creation of Venrock, which transformed an informal angel group into one of the first professional family-office venture operations. Along with the Phippses and the Whitneys, Venrock set the bar for professionalized venture investing. Over the thirty years through 1999, Venrock, which began with just $7.5 million in capital, invested in 272 companies, of which 152 were winners (with gains of $1.9 billion), 71 were losers (losses of $93 million), and 72 still in play. Crisp was helped in the effort by HBS grads Red McCourtney (’66), Anthony Sun (’79), and Ray Rothrock (’88).5
There is John Castle (’65), chairman and CEO of DLJ Capital, who oversaw the launch of DLJ’s Sprout Fund in 1969 with $11.5 million in funding—the first venture fund directly sponsored and controlled by an investment bank.

pages: 790words: 253,035

Powerhouse: The Untold Story of Hollywood's Creative Artists Agency
by
James Andrew Miller

I’m not so much talking about what the film is about, because I don’t believe I’m moral artistically all the time, but more in terms of the code I use when I either accept or pass on roles.
In 2008, CAA’s Rick Hess was an executive in charge of the agency’s Film Finance Group, increasingly finding himself, often in tandem with partner David O’Connor, involved in multifaceted transactions from private equity, hedge funds, and wealthy family offices to fund slates on movies. For example, CAA had put together for producer Jerry Bruckheimer a financing fund that was north of $300 million from Barclays, and even though it was discontinued after the crash of 2008, Bruckheimer was still able to walk away with roughly $20 million for development. Add to that a massive deal for Chris Meledandri to start a subsidiary group at Universal and it became clear that there was a full-service investment bank advisory group to be formed.

Indeed, his father had turned from Judaism to the Ethical Culture Society, and Joe Junior was very much the assimilationist, at ease in almost any social sphere. Indoctrinated early in the tobacco business and as a youngster attending leaf auctions abroad with his father, Joe Junior worked for a while after college in the tobacco fields of Wisconsin and on Cuban plantations before sharing a rolltop desk with his father in the family office. Over time, he would master the horticulture of cigar tobacco to the point where he could tell by the look, feel, taste, and smell of a leaf just where it grew, the nature of the soil that had nourished it, the density of the yield per acre, and what kind of fertilizer had been applied to it. He also moved the family beyond the business of buying and reselling Sumatran leaf for wrapping cigars and Cuban leaf for filling them by pushing his father in 1910 into buying land in the Connecticut River Valley to raise their own “shade” tobacco, grown under a veil of protective cheesecloth, for sale to cigar makers.